LITTLE ROCK, Ark. (AP) - A proposal to use federal money to purchase private insurance for 250,000 low-income Arkansas residents passed Friday in the state Senate, advancing an idea that Republican legislative leaders and Democratic Gov. Mike Beebe are promoting as an alternative to expanding Medicaid enrollment.

By a 24-9 vote, the Republican-led Senate approved the "private option" proposal that GOP lawmakers and Beebe have negotiated as a compromise over the Medicaid expansion called for under the federal health care law. Its implementation, however, ultimately hinges on lawmakers approving a separate budget bill for the state to carry out the program and the federal government signing off on the plan.

The plan also faces obstacles in the House, where the top Republican on Friday warned that the rejection of a separate bill aimed at preventing Medicaid fraud threatened the private option's prospects.

Under the Senate-backed bill, low-income citizens - those who make up to 138 percent of the poverty line, $15,415 per year - would receive private insurance purchased with federal Medicaid dollars through the exchange created under the federal health care law.

"I believe that we have tailored a program here in this bill that works for Arkansas, one that's conservative in nature and takes into account and embodies a number of conservative principles," said Sen. Jonathan Dismang, R-Beebe, a co-sponsor of the bill.

The bill includes a provision that would end the program if the federal funding falls below certain percentages. It also requires the state to seek federal approval to move some children and adults on Medicaid to the insurance exchange. Lawmakers also would have to revisit the proposal in 2017, when the federal funding for the program begins to drop.

Beebe announced in February that the Obama administration had given Arkansas permission to pursue the private option approach after Republican lawmakers had pushed for more flexibility with Medicaid expansion. On Tuesday, Beebe released a letter from U.S. Health and Human Services Secretary Kathleen Sebelius that said Arkansas' proposal was consistent with Medicaid's requirements - but stopped short of giving final approval.

The idea has been gaining support among Republicans who won control of the Legislature in November partly on a vow to fight the health care law at the federal level. House and Senate GOP leaders endorsed the proposal this week. The bill is also backed by the Arkansas State Chamber of Commerce, the state's largest business lobbying group.

The state Department of Human Services has said Arkansas would save about $670 million over the next decade by cutting down on hospitals' uncompensated care costs. Beebe has tied the debate over the private option to a Republican push for tax cuts, saying the savings from the program could fund a substantial amount of lawmakers' sought-after reductions.

The governor said talks about his proposed $4.9 billion budget also depend on lawmakers taking action on the private option.

"You can't even talk about what the budget is going to look like until you see what tax cuts are going to pass. You can't see what tax cuts are going to pass until you see what's going to happen with the private option," Beebe told reporters after the vote. "It's all tied together."

Several hurdles remain. The budget bill needed for the program must get three-fourths approval in the House and Senate. Friday's vote fell short of the 27 votes needed in the Senate.

"I'm cautiously optimistic, but there's still more work to be done," Beebe said.

The idea also has faced opposition from some conservative figures and groups, including Congressman Rick Crawford and the Arkansas chapter of Americans for Prosperity, who say the proposal is no different than the Medicaid expansion called for under the federal health care law. The GOP lawmakers who voted against the plan Friday echoed those complaints.

"It's still an incredible increase in spending, whether you look at it from the federal level or the state level," said Sen. Jim Hendren, R-Gravette. "I didn't come down here to grow government and put a whole lot more people on an entitlement program."

Speaker Davy Carter, R-Cabot, said he believed the House would approve the private option bill next week. But House Majority Leader Bruce Westerman who is a co-sponsor of the Senate bill, has called for delaying the final vote until next year and on Friday said he would propose changes to the private option being considered.

Westerman said under his plan, Arkansas would still use federal Medicaid to subsidize private insurance plans for low-income people, but those plans would offer fewer services and have higher deductibles and co-payments than currently proposed. The savings generated from those changes would be directed into private health savings accounts for all private option participants.

Westerman also warned that the private option effort was threatened by a House committee rejecting his proposed pilot program to give Medicaid recipient "smart" cards that state officials could track to prevent fraud. The panel rejected the measure after DHS officials voiced concerns about funding and the difficulty for some elderly and disabled Medicaid recipients in obtaining the cards.

"Without reforming the existing system, and reforming the whole system, I don't think the private option is an option," said Westerman, R-Hot Springs.

A spokesman for Beebe said the administration was believed the proposal could be changed to address DHS's concerns and still achieve the same goals.